August 29, 2013

Another Story of Obamacare Rate Shock That Isn't

Another Obamascare article is making the rounds. This one, from National Journal, is about what people buying their own insurance will pay on the new Obamacare exchanges—and how those prices compare to what people pay when they get coverage from their employers. “For the vast majority of Americans,” reporter Clara Ritger writes, “premium prices will be higher in the individual exchange than what they're currently paying for employer-sponsored benefits, according to a National Journal analysis of new coverage and cost data. … Whether the quality of care in the new market is comparable to private offerings remains to be seen. But one thing is clear: The cost of care in the new market doesn't stack up.”

Predictably, the article has gotten attention from conservatives. Already there’s a tweet from Byron York, a blog item from the Weekly Standard, plus entries at the American Thinker, HotAir, and PJ Media. You get the idea. But this analysis doesn’t really tell us what the Obamacare critics think it does. In fact, I'm pretty sure it doesn't really tell us what Ritger thinks it does.

Ritger’s analysis is based on a seemingly simple comparison. She looked at what people can expect to pay for insurance in the new Obamacare “exchanges,” using figures from California’s new insurance marketplace, which seem pretty typical for the country as a whole. Then she looked at what people can expect to pay for employer coverage, using data on the “employee contribution” from the Kaiser Family Foundation. Ritger has written lots of good stories on health care reform and, to her great credit, she didn’t make some of the most common analytical errors, like forgetting to include the impact of federal subsidies.

But the analysis has other, serious flaws. For one thing, the true cost of employer-sponsored insurance should include at least some portion of what the employer pays. Jonathan Bernstein, who is guest-blogging at the Washington Post's Plum Line, explains why:

Employers don’t provide health insurance for employees out of some sort of weird altruism. They provide health insurance as part of employee compensation. That compensation is in the form of health insurance because it makes sense for both sides (thanks to tax treatment of wages and benefits). If that changes — if compensation through health insurance no longer saves both sides money — what would presumably happen is that employers would either substitute higher wages or other benefits.

Here's one way to think of it. Imagine your employer provides with you insurance, and kicks in $4000 so that your nominal share is just $1000. You're actually giving up a lot more than $1000. That $4000, or some signficant share of it, is also coming out of your pocket, because it's money you're not getting in extra wages.

Now, if your employer suddenly yanked away your coverage without offering some other form of compensation—a big raise, for example—you'd probably be pretty upset. And, in that case, the comparison Ritger is making might seem more relevant. But experts have predicted few, if any, companies would do that. And all of the available evidence suggests those experts are right. The only stories of employer "dumping" we've seen are companies like UPS cutting off coverage for some spouses. But in those cases, employers are stopping coverage only for spouses who have their own jobs and can get insurance from their own employers.

Someday, large numbers of employers might start dropping insurance and forcing workers to find coverage in the Obamacare marketplaces. But it's not likely to be any time soon, most experts believe. And it's not likely to happen unless employees see at least some upside, because they are getting more cash and the exchange coverage is good enough. The exception might be lower-wage employees, whom companies feel less compelled to please. But those are precisely the workers who, because they make so little money, would be eligible for thousands of dollars a year in federal subsidies. In other words, they'd almost certainly be better off.

Ritger's piece did make some important points—among them, she noted that the lower-cost policies available in the Obamacare exchanges are going to have high co-payments and deductibles. Liberals are unhappy about this feature for the same reason conservatives (should) like it: It means people will stay face high out-of-pocket costs, even when they have insurance. This point has gotten way too little attention so far. And Ritger's piece did convey other important nuances—chief among them, the fact that "average" figures about insurance costs are always a bit misleading, because the numbers vary so much depending on income and circumstance. When it comes to people who already buy coverage on their own, for example, some can expect to pay more next year and some can expect to pay less. (Exactly how many fall into each category remains a matter of contention, as readers of this space know.)

But the broad statements (not to mention the headline) of this new article doesn't convey these nuances. And it’s the conclusion, I fear, that’s about to become another right-wing talking point.

Jonathan Cohn is a senior editor at the New Republic. Follow him on Twitter @CitizenCohn